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Tuesday, November 13, 2012

The Production of Soulless Beer

The phrase "craft beer" is rightly denounced for its imprecision. It's hard to say what craft beer is or how it differs from non-craft (size, ownership structure, quality or type of beer?), but this extraordinary article in Businessweek illustrates exactly what it is not--cripplingly soulless beer from which every extraneous cent has been wrung:

For a number-crunching manager like [InBev CEO Carlos] Brito, an old, family-run company like Anheuser-Busch
provided plenty of opportunities for cuts. He laid off approximately
1,400 people, about 6 percent of the U.S. workforce. He sold
$9.4 billion in assets, including Busch Gardens and SeaWorld. AB InBev
also tried to save money on materials. It used smaller labels and
thinner glass for its bottles. It tried weaker cardboard for its
12-packs and cases. The old Anheuser-Busch insisted on using whole
grains of rice in its beer. AB InBev was fine with the broken kind. “Our
purchasing of rice has to do with how fresh the rice is, not whether it
is whole or broken,” says Vallis.

And

In a telephone interview from Munich, Willy Buholzer, AB InBev’s
director of global hops procurement, cheerfully insists that the company
still brews the traditional way with Hallertauer Mittelfrüh. He says
the reason that AB InBev stopped buying it was that it has a surplus.
“We just have too much right now,” Buholzer says. “We need a break for a
couple of years.”

A former top AB InBev executive, who declined to be identified
because he didn’t want to get in trouble with his old employer, tells a
different story. He says the company saved about $55 million a year
substituting cheaper hops in Budweiser and other U.S. beers for more
expensive ones like Hallertauer Mittelfrüh.

And of course

So much cash flowed in that by 2011 the company was able to pay down
early a significant portion of the $54 billion it had borrowed to
finance the Anheuser-Busch takeover. This triggered $1.3 billion in
stock-option bonuses for Brito and 39 other executives that year.

The whole piece is a must-read, but--spoiler-alert--as the story unfolds, writer Devin Leonard takes it to its obvious conclusion. The modern InBev is a shark that makes money by snacking on new acquisitions and wringing savings from them. That's what motivates InBev's appetite for Modelo and why industry watchers think SABMiller is in their sights as well. As Leonard points out, the man running the company, Carlos Brito, doesn't make and sell beer, he acquires beer companies. If you happen to like beer in the portfolio Brito covets, this isn't good news. (The article details violence done to Beck's and Bass, in addition to Budweiser.)

I don't know exactly how we should think about "good beer" and "macro" or "industrial" beer. But I do know that we should think very poorly indeed about breweries mishandled like this. It's a debased, degraded product and it's offered with contempt to consumers. If you have friends or relatives who still drink Budweiser, forward them the article and tell them to switch to Yuengling or Sam Adams instead.

11 comments:

I'll reiterate a point that Pete Brown has made before: It's not the products they make, it's what they do. They feast on the assets of other companies and squeeze every cent out of them, and once they've consumed all they can, they move on to their next target. It's not a strategy with lasting implications (that is, unless they target a company that doesn't make beer, which they surely will).

And for we, the beer romanticists, we're forced to watch legendary brands such as Bass rot into obscurity.

Yikes! What does that portend for Widmer, that has a big investment from A-B? One of the plusses of that association that Widmer touted was the bigger company's commitment to freshness and quality (even if beer snobs don't care for the end product). Sounds like that commitment is gone now.

It's curious how we may see things through a different lens. In this case, mine clouded by lupulin.

First, there's the math on the hops. It might be right, but I'd like it explained (and by a quoted source). In 2008, the Mittelfruh crop was at least triple what it is now, and totaled about 3,200 metric tons. The contract price for Mittelfruh is about 6 euros per kg, which would make the ENTIRE crop worth $25 million (at the high end - you know ABI can do better - and in a year much more was grown).

Indeed, hop usage worldwide has shrunk in the past 100 years, in part because of efficiency and in part because brewers use fewer hops. I'm biased. I think that sucks. But I need proof that the hop aroma/flavor of ABI owned beers has changed since 2008. They weren't exactly hop bombs going in.

Which brings us to the whole Beck's thing. I would like to see an independently conducted taste panel - fresh beer from Bremen and fresh from St. Louis. Then we'd no the validity of the argument in the lead.

Not saying story can't be valid, but not willing to follow the author through a few hoops when I see red flags about.

Stan, noted. I didn't write the piece, so I can't speak for the sources. But your suspicions don't disprove the story. Leonard directs us to enough smoke that even without the hop angle we must consider the presence of a fire.

I will add that I've spoken to several AB guys over the years--plant workers and lower-level techs--and they tell a very similar story.

As you know, I don't blindly hate large breweries, and it's quite possible that the changes Brito made didn't affect the beer much or at all. But AB was universally recognized as the best brewer in the world prior to the InBev acquisition--brewers from Belgium's lambicland to England's largest ale breweries praised it. Beer geeks weren't aware of it, but AB's commitment to quality put it in a class of one in the beer world. Will that be true in a decade?

This makes me wonder what might happen to Goose Island in the future. Sure everything seems all roses and such now. But what about when they aren't cutting off enough to bring the profits the corporate machine wants?

I worked for AB from 2007 to 2011. The company that I started with was not the same company that I left. In 2007, beer was referred to as beer. In 2011, beer was referred to as extract.

There was indeed a hop surplus, but that was due to the use of an additive that allowed for increased 'hop efficiency'. In addition, the old AB prided itself on being able to make Bud Light without the use of added enzymes (unlike Miller Lite); however, just before I left enzyme injection had been approved for use on Bud Light (with some detrimental effects to the flavor profile).

Finally, in addition to layoffs, many employees are being forced out through early retirement and a hostile work environment. I found some notes from my exit interview last night which said "This company will continue to lose good employees as long as this exploitation continues".

I fail to see the mystery here. ABI aggressively acquires brands for profit. They buy out a brand, close its brewery and shift production to a factory with cheaper ingredients and labor. The only reason this hasn't happened to the Craft Brew Alliance is AB doesn't own a controlling interest. Give Kurt and Rob some credit for not allowing that to happen.

Goose Island is a bit of a different story. ABI bought the brand and shifted the bulk of the production to their beer factories. They allow the old pub and brewery to stay open I suppose because it's a good place to do small batch experimental brewing...plus, it creates the impression that ABI isn't destroying the brand. But ABI is a destructive, profiteering, evil empire. There's really no grey area.

On a related tangent, what are we supposed to make of the soulless craft brewers who take an established, popular beer and alter the recipe so they can reduce production costs and make more profit?